Voluntary Disclosure Agreements: Remediating Tax Issues for Multistate Business
Companies that sell products or services in multiple states routinely face tax obligations that involve complex taxability and complex nexus rules. Growing multi-state businesses often develop sales tax exposures or income tax exposures before the business has an internal sales tax team. One of the most effective ways to manage these risks is entering into a Voluntary Disclosure Agreement, an arrangement between your business and the relevant tax jurisdictions that lets you come into compliance while commonly waiving penalties and limiting the lookback period.
Benefits of Doing A VDA
1 Limit the lookback to 3 or 4 years for most states.
2 Most states will waive penalties.
3 Some states will waive or limit interest.
1 Most states will assess tax for periods where the taxpayer did not file, often including 7 or 10 years, and some states may go back even further.
2 Penalties can range from 25% to 100% for failure to file tax returns and failure to pay the tax.
3 While interest varies by state, when a state goes back 7 or 10 years, the interest can become material.
Risks of Not Doing the VDA
1. Submission of the VDA Request
The initial step involves formally notifying the state of your intent to disclose and remediate outstanding tax liabilities through a structured voluntary program.
5. Submit the Applicable Returns
File the completed tax forms for all relevant periods with the state tax authorities according to the VDA guidelines.
Generally, states prohibit a company that has previously been contacted by the state from entering into a voluntary disclosure agreement. Additionally, states will generally prohibit a company that is already filing that tax in the state from entering into a voluntary disclosure agreement. Certain states will prohibit a company that files one tax from participating in a voluntary disclosure agreement for another tax. Meanwhile, certain states, such as Ohio and Texas, will allow an existing filer to enter into a voluntary disclosure agreement.
The Voluntary Disclosure Agreement Process
2. Review & Sign the VDA Agreement
Carefully review the terms provided by the jurisdiction, ensuring all the terms are understood including lookback periods, and the applicable taxes.
6. Submit Payment for the Taxes
Remit the full amount of tax due for the lookback period, typically excluding penalties as per the signed agreement.
3. Prepare & File Registrations
Complete the necessary business and tax registrations required by the state to establish your account for future compliance filings.
7. The State Calculates the Interest
The jurisdiction reviews the filed returns and applies the statutory interest rates to the historical tax liabilities.
4. Prepare the Applicable Returns
Quantify the total liability for the agreed-upon lookback period and compile the specific tax returns required for submission.
8. Submit Payment for Interest
The final step is the payment of the calculated interest, completing the voluntary disclosure process and attaining full compliance.
Transparent Service Pricing
Venture Tax Group maintains a transparent pricing structure to ensure you understand the investment required for state tax compliance. While every situation is unique, the following figures represent our typical fee schedule for jurisdictions.
Voluntary Disclosure Agreement
$5,000
Per jurisdiction for the complete voluntary disclosure agreement process.
These represent typical fees at Venture Tax Group. For more complex historical scenarios or unique nexus profiles, we encourage you to inquire for a tailored scope of work that accurately reflects your situation.
Sales Tax Preparation
$1,500
Per jurisdiction for detailed sales and use tax liability quantify and filing.
State Income Tax Returns
$1,000
Most state income tax returns are priced per jurisdiction to ensure complete compliance.
Start Your VDA Process Today
Connect with Venture Tax Group consultants to navigate voluntary disclosure agreements and secure your state tax compliance with confidence.